Should the U.S. government cut subsidies for corn ethanol? Comments by Ford CEO Alan Mulally hint at that, saying the government should support "one technology" (electrification), rather than spreading funding. (Source: Hollandtown: Holland Farm: Corn Harvest)

More controversial is the proposal to block states like California from self-governance when it comes to setting stricter fuel economy standards. (Source: treehugger)

Alan Mulally saved his company from bankruptcy, while peers GM and Chrysler went through government takeovers and restructuring. Mr. Mulally warns that the auto industry is seeing slowing sales this quarter. (Source: Bill Pugliano/Getty Images)

Executive would like to see states banned from setting their own arbitrary standards

Ford
Motor Company (F)
CEO Alan Mulally is one of the most respected figures in the auto industry
today, having been the only head of a member of the "Big Three" U.S.
automakers to save his company from bankruptcy in the
2007-2008 financial crisis. However, his new comments will certainly be
considered controversial by politicians, lobbyists, and citizens alike.

I. Block States From Self-Governance of Fuel Economy?

Mr. Mulally met early Tuesday morning with House Speaker John Boehner (R-Dayton, Ohio); Rep. Fred
Upton (R-St. Joseph, Michigan), chairman of the House Energy
and Commerce Committee; and Rep. John Dingell (D-Dearborn,
Mich.), a key supporter of the Detroit automakers.

Later in the afternoon he attended a meeting co-hosted by Reps. Dan
Benishek (R-Crystal Falls, Mich.); Bill Huizenga (R-Zeeland, Mich.); and Jeff Duncan, (R-Laurens, S.C.); with Rep. Hansen Clarke, (D-Detroit, Mich.) also in
attendance. He also met with Bill Daley, the White House chief of
staff, and David Plouffe, senior adviser to President Barack Obama in a separate
session.

At the meetings Mr. Mulally urged lawmakers to take Congressional action to
implement a single consistent fuel economy standard and block states from
proposing their own stricter standards.

Despite the fact that Congress is indeed preparing a new set of fuel economy
standards, which would extend the Corporate Average Fuel Economy (CAFE)
through 2025, the proposal to strip states of the right to regulate their own
standards to a stricter threshold is controversial.

First, opponents argue that it strips states of their right of self-governance.
This is a place where Republicans, in particular find themselves in a
philosophical dilemma. Their party has recently run on a platform of
state rights, but they have traditionally opposed letting states regulate their
own emissions, with former Republican President George W. Bush moving to block
California and other states from doing so.

Second, the decision would run afoul of a 2007 Supreme Court ruling in the case Massachusetts
v. EPA, which concluded that states had the right to set their own stricter
mandates. The ruling allowed California to effectively sue
the federal government and force it to stop obstructing its
standard. In the wake of the suit, President Obama instructed the U.S. Environmental Protection Agency and
Congress to allow states to set their own standards.
The issue will likely be pushed. Even as the U.S. debates the future of
CAFE, California, the nation's most populous state, is moving to set its own
stricter standards for 2025. It will likely be followed by several other
states that adhered to California's previous emissions policy, adopted by President Barack Obama for the entire nation.

II. Ford: Back "One Technology"

Mr. Mulally also urged members of Congress to back "one technology"
if they were serious about alternative energy vehicles.

Ford Motor Company officials did not specify what this "one
technology" was, but most construe it to mean electrified vehicles. Ford has been
less enthusiastic than its peers about the "other" leading
alternative vehicle technology -- ethanol fuel.

The potentially implied proposal to ditch federal subsidies of ethanol and corn
farming is a controversial one -- among corn farming states, at least.
Farmers have grown fat off billions in yearly
government subsidies, with a major chunk of it coming from ethanol
grants and mandates. In total corn farmers drew $73.8B USD from 1995-2009
from the U.S. federal and state governments.

The pull of the corn farmers is particularly strong in the U.S. Senate, where
the numerous low-populous farm states have a much larger representation.

The proposal may also target other alternative fuel technologies -- such as
compressed liquefied natural gas (CLNG), which some say could supplement
traditional petroleum, much like ethanol.

III. Ford in Trouble?

One thing mentioned by Mr. Mulally may trouble Ford investors. He would
not comment on Ford's Q2 2011 sales, but did say that the market is
"slowing down … it's a little less than what we hoped for at the beginning
of the year", according
toThe Detroit News.

That could be a trouble sign as Ford and other automakers had seen strong
sales over the past couple quarters.

If the American automakers are indeed starting to struggle once more, that
could make the debates over ethanol and emissions even trickier. After
all, the automakers say that a strict 62-mpg standard could "kill" the American auto industry.
And any money in ethanol subsidies will likely come at the expense of
government funding of electrification efforts, which the automakers will likely
need to satisfy CAFE.

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